Posts filed under ‘New York State’

Sorry for the late blog, but I just found out that the Governor signed our mortgage consummation bill(Chapter 491l. Effective immediately, the measure clarifies that, for purposes of RESPA and TILA, consummation occurs when a mortgage applicant signs both the mortgage and promissory note. This is most commonly done at closing.

This chapter provides welcomed certainty because the CFPB requires closing disclosures to be received by a member at least three days before consummation with certain exceptions. Case law suggested that consummation occurred when a financial institutional provides a member with a signed mortgage commitment.

As expected the Governor indicated that the Legislature will be amending the bill to clarify that it applies to electronic signatures

A bill clarifying that a mortgage is consummated at closing in New York State is on the verge of becoming law. The legislation, (S.7183/Savino A.9746/Richardson) was sent to the Governor on November 16. The Governor has 10 days excluding Sundays to veto a bill after it has been sent to him or it automatically becomes a law. (N.Y. Const. art. IV, § 7). This means that we should know by tomorrow morning at the latest whether or not the bill has been approved by the Governor. He is expected to approve it.

Overtime Regs Blocked

Black Friday came early for employers. In case you missed it, on Tuesday a Federal District Court in Texas blocked the Department of Labor from implementing regulations that would have increased the number of employees eligible for overtime effective December 1, 2016.

Under the Fair Labor Standards Act, non-exempt employees who work more than forty hours a week must receive overtime pay. Regulations set to take effect on December 1, 2016 would have doubled the salary threshold from $455 per week ($23,660 annually) to 921 per week ($47,892 annually). This meant that if your branch manager made less than that amount starting December 1 she would be entitled to overtime.

It also stipulated that the salary threshold would be automatically adjusted every three years to equal the minimum salary level based on the 40th percentile of weekly earnings of full-time salaried workers in the lowest wage region of the country.

The lawsuit brought by a group of states challenged the authority of the US DOL to automatically index the exemption threshold. Not only did a Federal District judge agree with this argument but he imposed a nationwide injunction against its imposition.

He explained that “The State Plaintiffs have established a prima facie case that the Department’s salary level under the Final Rule and the automatic updating mechanism are without statutory authority. The Court concludes that the governing statute for the EAP exemption, 29 U.S.C. § 213(a) (1), is plain and unambiguous and no deference is owed to the Department regarding its interpretation.” Nevada v. United States Dep’t of Labor, No. 4:16-CV-00731, 2016 WL 6879615, (E.D. Tex. Nov. 22, 2016)

Does this mean all that work you did reclassifying your employees was for nothing? Not at all. For one thing, the injunction could be reversed. In addition, the pending regulation provided credit unions the opportunity to examine how their employees should be classified. Finally, as explained by this Bond, Schoeneck & King blog, New York is promulgating state level regulations which will increase the exempt employee threshold.

This is yet another example of the increasing tension between an Executive branch aggressively using its regulatory powers and a Judiciary increasingly unwilling to defer to agency judgements. For those of us who believe that federal agencies have been given too much flexibility over the years to interpret laws as they see fit and not as Congress intended, this is a good thing.

Chris Christie Named Secretary of Transportation

Explaining that no one understands the importance of transportation to a political career better than he does, President- Elect Trump recently named N.J. Governor Chris Christie as his Secretary of Transportation. Trump also announced that Howard Stern will be his Communications Director.

The next time someone tells you the more things change, the more they stay the same, remind them about the election of 2016. No one, including Donald Trump, knows precisely what all this means for credit unions, but there are some very intriguing possibilities.

Mandate relief is a real possibility. One of the most conservative Congresses in history will now have a Republican president. The Democrats only picked up one Senate seat and although the House majority was trimmed, the flame thrower faction will see last night’s results, with some justification, as vindication of their scorched earth approach to governing. Without the threat of a veto, legislation to scale back the CFPB and provide mandate relief to smaller financial institutions may grow legs.

CFPB will be in the cross hairs. When the United States Court of Appeals for the District of Columbia ruled that the CFPB’s director was an at-will servant of the President, credit unions were disappointed that the Court didn’t go further in invalidating the whole enterprise. Now that case has some real teeth. With anti-regulation Trump coming to town, the Bureau is effectively in limbo. Who do you thing his Director will be?

What regulators give, they can take away. Expect every single controversial regulation and guidance, ranging from the exempt employee threshold to the accommodation of transgender employees, to get a second look.

Some New Old Faces Go to Washington

By the way, the newly emboldened majority in the House will include former NYS Assembly Republican Minority Leader John Faso (R) and Assemblywoman Caudia Tenney. Former Nassau County Executive Tom Suozzi (D) is back in the game, claiming NY’s third Congressional district. State Senator Adriano Espaillat easily won the seat vacated by the retiring Charlie Rangel.

Senate Republicans Holding On

On the state level, the results are almost as remarkable in their own way but there are still a couple of races in the Senate that are too close to call. As of right now it appears that reports of the demise of a Republican Senate have been greatly exaggerated. Here is the breakdown as reported by the Times Union this morning

Last night’s “results” left the Senate breakdown: 32 Republicans, 23 mainline Democrats, seven members of the Independent Democratic Conference, and one Simcah Felder (a Democrat who conferences with the Republicans).

If everything holds, with Felder, the GOP would have an outright majority of 33 members. “

The Democrats hold a slight lead in a Long Island race that is headed for a recount. The key point is that, even though the IDC has grown, it has done so at the expense of the Senate Democrat caucus. Furthermore, it’s possible that the Republicans will be in the majority without the IDC’s help.

Last week I saw one of the best examples in years of why it is so important for all credit unions in New York that there be a viable State Charter. In the aftermath of NCUA’s decision to amend its field of membership regulations to give credit unions greater flexibility in taking on additional members, Department of Financial Services, Superintendent Maria T. Vullo, issued a statement in which she pointed out that NCUA made these changes, in part in response to the more flexible FOM’s offered by states such as New York. She also encouraged “all credit unions to take advantage of New York law to provide financial services to all New Yorkers and pledges to timely review all applications by new or existing credit unions seeking to be chartered by New York State”.

The Press Release warmed my cynical heart for several reasons. First, the Superintendent is spot on. NCUA Board members were refreshingly frank in acknowledging that they were putting forward FOM reforms, in part, to keep the federal charter as attractive as possible. New York is an anomaly in that all but 17 of its credit unions are federally chartered. Nevertheless, its FOM makes this state among the most attractive for field of membership purposes because credit unions can mix- and- match community, association , and employer groups. It’s possible that federal law gives your credit union all the flexibility it needs, but if charter expansion is a primary concern, the state’s law is worth taking a look at.

Second, it is great to see the DFS openly encouraging credit unions to consider taking advantage of New York’s Law. There is a lot more that we can accomplish for all credit unions with a truly committed state level partner.

Third, while I am encouraged by the DFS’s statement, both the legislature and the DFS should remember that new mandates have consequences. For example, any Federal Credit Union thinking of converting to a state charter would be nuts to do so before the state finalizes its new cybersecurity regulations and explains precisely what it expects credit unions to do to comply with this surprisingly detailed mandate.

Does anybody really know what time it is?

I love the extra hour sleep but could someone please explain to me why, in a country as technology savvy as our own and the internet capable of telling me that I’ve run out of milk we can’t come up with a way of automatically updating all clocks to reflect the actual time? As I was getting ready for work this morning, I had to repeatedly remind myself that I wasn’t running an hour late. By the way, why do they make car clocks so difficult to change that only James Bond can make it look easy?

Although NCUA’s final FOM regulations got most of the attention after Thursday’s NCUA Board Meeting, there were two other issues discussed that are worth keeping an eye on.

Most importantly, the Board received a briefing on the interplay between risk based capital and supplemental capital. The briefing is expected to be followed by an Advanced Notice of Proposed Rulemaking early next year. Remember an ANPR is not a suggested regulation; rather it is a regulatory mechanism to get feedback on what a proposed regulation should look like.

Specifically it examined these questions:

Who—individual or institutional investors—would be allowed to purchase these securities?

What tax laws and securities laws—such as anti-fraud laws—would apply?

What disclosure standards would apply?

NCUA seems to be laying the ground work for expanding access to supplemental capital with or without congressional help. If you thought the community bankers were upset about NCUA’s MBL amendments, or really really annoyed about the FOM Amendments, just wait to see them go apoplectic over any regulations in this area.

Another real sleeper that the NCUA addressed is to propose joint regulations mandated by the Biggert-Waters Flood Insurance Reform Act of 2012 establishing criteria for the acceptance of private insurance to satisfy flood insurance requirements. I have a real soft spot for this act because it was a bipartisan attempt to reform a flood insurance program that provides perverse incentives for people to buy homes that are located in areas prone to flooding. Don’t get me wrong, that is their choice; I just don’t know why my tax dollars should subsidize their gamble.

The Federal Emergency Management Agency, which is part of Homeland Security is ultimately responsible for underwriting flood insurance, but farms the job out to private companies. Newsday is reporting that more than 144,000 flood insurance claims were filed after 2012 and within a year complaints began to surface that adjusters were playing hardball. FEMA has now reopened the review process to reexamine more than 19,000 files, and has paid out an additional $112.6 million since Friday.

I am hoping that Federal Regulators have the good sense not to finalize these regulations before everyone can figure out what is wrong with the existing system.

The most interesting statistic I heard last week at the Association’s annual Northeast Economic Forum was that 48% of new mortgages last year were originated by nonbanks. Technology has come to mortgage lending and the companies that emphasize electronic mortgage applications and processing are beating the pants off lenders that rely on having people apply at their brick-and-mortar branches.

I was thinking about this factoid this morning as I read an interview with the OCC’s General Counsel, Amy Friend, in the American Banker. The OCC is rolling out plans for creating a special charter for fintech companies. Now here is a regulator that sees the writing on the wall and wants to remain relevant.

Why would companies want to be regulated by the OCC? The OCC says that the idea has appeal to a lot of companies that don’t want to be regulated by fifty different state regulators. Anyone who has taken a look at New York’s proposed cybersecurity regulations can understand why.

She explains that “We can provide a single charter with some uniformity, and that makes it very appealing. But, we also take that authority very seriously, and understand its implications. The comptroller has made it clear that if we decide to grant a national charter in this area, the institution that receives the charter will be held to the same high standards of safety, soundness and fairness that other federally chartered institutions must meet.” She further explains that institutions might want to get both a traditional bank charter and take deposits in which case they will also need to be regulated by the FDIC. Why not the NCUA as well?

The plan is still in the conceptual stages but in March the OCC released a white paper on supporting financial innovation in the banking system and last month it proposed regulations clarifying its authority to wind-down bankrupt non-depository financial institutions that are not insured by the Federal Deposit Insurance Corporation . The regulation is seen as a first step in explaining how the OCC could oversee bankrupt Fintech charters.

More on Navy

In Thursday’s blog I highlighted the CFPB’s consent order against Navy Federal and the impact it could have on credit unions who suspend services to members who have caused them a loss. Judging by the number of readers I really hit a nerve.

According to the Bureau, it was an unfair and deceptive practice for Navy to freeze electronic account services to members who were delinquent on loan payments. That simply isn’t true-at least according to the NCUA. To add a little fuel to the fire here is a 1997 opinion from the NCUA in which it explains that credit unions may restrict services to members who are delinquent:

“In the past, we have allowed for suspension of services when the member caused a loss as a result of bankruptcy, an NSF check or a charged-off loan, but we have never addressed the issue of a delinquent loan. You advise that a delinquent loan increases the FCU’s collection costs resulting in a loss to the credit union. As long as the FCU has a rational basis for limiting services, we would have no legal objection.”

So how can Navy be fined, in part, for adopting practices explicitly authorized by its primary regulator for almost thirty years? Is this another example of CFPB overreach? Inquiring minds want to know.

But don’t be too depressed. The Court’s ruling is a significant victory for those of us who believe that Congress gave too much power to one person. It makes the Bureau more accountable to the political process and, by implication, potentially more receptive to the concerns of the credit union industry. It also clarifies some important RESPA issues that I will address in a future blog

The case dealt with the legality of a $109 million fine imposed on PHH by an administrative law judge after the CFPB alleged it was violating the anti-kickback provisions of RESPA. Originally PHH just wanted the fine vacated but in appealing the ruling it broadened its argument to challenge the constitutionality of the Bureau itself. It argued that the separation of powers mandated by the constitution was violated because the CFPB’s Director could only be removed by the President “for cause.” Congress has created, and the Courts have approved , independent agencies but these agencies have been overseen by boards of individuals; not a single director empowered to promulgate whatever rules and take whatever enforcement actions he or she deems appropriate.

The Court agreed. “The single-Director structure of the CFPB represents a gross departure from settled historical practice. Never before has an independent agency exercising substantial executive authority been headed by just one person.” It ruled that the CFPB as structured was unconstitutional.

But its remedy was as simple as its application of precedent was straightforward: Rather than disband the Bureau it simply invalidated that portion of Dodd Frank which stipulated that the Director could only be removed “for cause.” This means that the President could give Director Cordray his walking papers today, no questions asked.

Does this matter to you? In the long-term I think it does. I am fond of calling the Director the Benign Dictator of Consumer Protection. From now on credit unions can blame the president for not doing enough to distinguish between the Big Banks and credit unions. And it’s probable that an agency no longer insulated from politics will be more willing than the Bureau has been recently to listen to legitimate industry concerns before promulgating regulations in the first place.

Frankly, the Bureau has grown more arrogant and intrusive with each passing month. Anything that constrains the actions it can take is a step in the right direction.

NY Issues Incentive Based Compensation Guidance

The only regulator pumping out mandates quicker than the CFPB lately is New York State’s Department of Financial Services. That’s not a good thing for those of us who want to maintain a viable state charter.

Reacting to the Wells Fargo Account Opening Scandal, the DFS released a guidance yesterday on Incentive Compensation Arrangements applicable to state chartered banks and credit unions. Here is one of its highlights:

“The Department advises all regulated banking institutions that no incentive compensation may be tied to employee performance indicators, such as the number of accounts opened, or the number of products sold per customer without effective risk management oversight and control.”

On that note get busy implementing all those Bureau regulations. I hope I see you this week at the Economic Forum.